The Court of Appeals for the Federal Circuit issued an en banc opinion today finding that induced infringement may form the basis for an investigation of unfair import practices at the International Trade Commission (ITC). The six-to-four decision in Suprema Inc. v. ITC upheld the commission's decision that a violation of 35 U.S.C. § 337 can be based upon induced infringement when direct infringement only occurs post-importation.
Under the two-step Chevron test for deference to administrative agencies, the en banc court found the statutory language—"articles that infringe"—does not unambiguously exclude inducement of post-importation infringement. Therefore, in view of the statutory text, the legislative history which does not directly address the issue, and overarching policy issues, the appeals court determined that the ITC's interpretation was reasonable. The practical impact is that claims based upon induced infringement and post-importation activities are permitted to continue at the ITC.
Background of the Case
This investigation began in May 2010 when Cross Match Technologies, Inc. (Cross Match) filed a complaint with the ITC alleging that Suprema, Inc. (Suprema), a Korean company, and Mentalix, Inc. (Mentalix), an American company, infringed four patents relating to fingerprint scanning. Here, Suprema manufactured the accused scanners abroad, and then Suprema and Mentalix imported the scanners in to the United States. After importation, Mentalix combined the scanners with software for use and sale in the U.S.
An administrative law judge (ALJ) conducted an investigation and found direct infringement by certain Suprema scanners when used with Mentalix's software. The ALJ issued a Final Initial Determination (ID) recommending a limited exclusion order barring Suprema's infringing scanners from importation into the United States and a cease-and-desist order preventing Mentalix from distributing the infringing scanners in the U.S.
In June 2011, the ITC reviewed the ALJ's ID of direct infringement and also considered whether Suprema had committed induced infringement by importing scanners for use with Mentalix's software. The commission found that Mentalix committed direct infringement by combining its software with Suprema's scanners post-importation and that Suprema "'willfully blinded' itself to the infringing nature of Mentalix's activities" which Suprema also "actively encouraged." The ITC modified the ALJ's ID to include a finding that Mentalix directly infringed the patent-in-suit establishing an underlying direct infringement by Mentalix that Suprema was found to induce. The commission issued a limited exclusion order barring importation of the infringing products and terminated the investigation.
Suprema and Mentalix appealed the findings of direct and indirect infringement to the Federal Circuit seeking to have the exclusion order vacated. In the panel decision authored by Judge O'Malley and joined by now-Chief Judge Prost, the court vacated the ITC's findings that Mentalix directly infringed a patent-in-suit and that Suprema induced such infringement. The majority reasoned that Section 337's language—"articles that infringe"—is a temporal requirement that infringement be measured at the time of importation. The panel concluded that the commission lacked authority under Section 337 to issue an exclusion order predicated on induced infringement because such imports are not infringing at the time of importation. Judge Reyna dissented, arguing that Section 337 has both in rem elements and in personam elements and, therefore, "Section 337 expressly applies not only to the moment of importation, but also, in the alternative to sales occurring before and after importation that can give rise to infringement liability." Cross Match and the commission petitioned for rehearing en banc, which was granted.
En Banc Decision
Judge Reyna authored the en banc opinion for the court, which framed the issue as follows:
We are asked to decide whether goods qualify as 'articles that infringe' when the Commission has found that such goods were used, after importation, to directly infringe by the importer at the inducement of the goods' seller. In other words, does the importation of such goods qualify as an unfair trade act under Section 337? If the answer is yes, the Commission has authority under § 1337(d)(1) to issue an exclusion order to prevent this act from occurring in the future.
The court applied the two-step Chevron test to determine what deference, if any, is owed to the ITC's interpretation of Section 337. Under the first step, the court found that the language of the statute—"articles that infringe"—does not unambiguously exclude inducement of post-importation infringement. The court found that the term "infringe" refers to 35 U.S.C. § 271 and that the term "articles" inserted "textual ambiguity" because no "articles" can infringe under Section 271. Rather, Section 271 refers to a person's actions, not products, which is inconsistent with use of "articles" throughout Section 337. The court found that Congress has not unambiguously resolved whether goods qualify as "articles that infringe" when used after importation to directly infringe at the inducement of the goods' seller. Accordingly, the disparity between the language of Section 337 and Section 271 presented sufficient uncertainty requiring resolution by the agency charged with enforcement of Section 337.
Under the second step, the court considered whether the ITC's interpretation of Section 337 was reasonable. The majority found that the commission's interpretation was consistent with the statutory text, legislative history, and policy of Section 337. The court reasoned that the commission's textual interpretation of Section 337 grants it authority to prevent importation of articles that are part of induced infringement as an unfair trade act which is consistent with the statutory phrase "articles that infringe." The court also agreed with the commission that Section 337 covers infringement that occurs after importation because it deems unlawful sale within the United States after importation.
The majority found the legislative history and statutory policy support this outcome. The court also referenced "nearly 35 years" during which the commission has "embraced its Congressional grant as bestowing authority to investigate and take action . . . based on induced infringement." The court concluded that this consistency supports the reasonableness of the ITC's interpretation. Accordingly, the court remanded the appeal to the original panel for further proceedings consistent with the en banc decision.
Dissenting Opinions
Judge O'Malley, joined by Judges Prost, Lourie, and Dyk, authored a dissent finding that the ITC should not be authorized to "bar the importation of articles of commerce that may or may not be later used by third parties to infringe a method patent, based only on the putative intent of the importer" when "it is undisputed that the patented method cannot be practiced unless the imported article is used in combination with software neither embedded in the imported article nor sold by the importer." Specifically, the dissent was concerned over the potential exclusion of staple goods that have both infringing and noninfringing uses that could be denied entry because they could be used to infringe a method claim post-importation.
The dissent says that "the majority strains to find an ambiguity in the statute where there is none, just so it may resort to the protective umbrella of Chevron." The issue of enforcement troubled the dissent, which noted that "Congress did not intend for Customs agents to need to decipher an importer's intent to induce infringement at some later date." The dissent finds no ambiguity in the statute and that the majority relied on its own inaccurate reading of the legislative history which should have limited value. As to the "equitable considerations," the dissent explains that the majority ignores the power available to the ITC and to the district courts to sufficiently address infringing activity and the dissent expresses concern about the commission overstepping its role and the majority having opened this "Pandora's Box."
Judge Dyk authored an additional dissent emphasizing the difference between this case and prior Section 337 cases "and how starkly the ITC's theory of induced infringement differs from its own past practice." Judge Dyk explains that the government conceded at oral argument that, in prior cases, the commission banned staple articles from importation based on inducement only where inducing instructions were imported alongside an article that was ultimately used to directly infringe in the United States.
Today's opinion maintains the possibility of a finding of violation predicated on induced infringement at the ITC. The majority decision and the forcefulness of the dissenting opinions, however, leave ambiguity regarding the scope of the appeals court's decision and the future of the ITC's practice in cases involving indirect infringement.
